Implications For International Trade And Economic Integration Economics Essay

“Trade in goods and services reflect one form of economic integration but some of the most significant changes in the international economy have been profoundly stimulated by labour and financial capital mobility across countries’. Critically discuss this statement in view of its implications for international trade and economic integration”

1- Introduction

There are some views that define economic integration between the states or international level might be helpful for the growth of and development of economic system of the concern state. In my preceding debate I will explain,

What is international economic?

What is economic integration?

What is Balance of Payments?

Why economic integration is important for international economic?

What is the role of MNCs in economic integration?

How economic integration make positive and negative changes in financial mobility of capital, labour and other factors of economic?

2- Literature Review

2-1: International Economics:

International economic deals with interactions among countries; where capital flow, immigration, migration and any sort of business occur between countries.

2-2: Economic Integration:

The world is huge market area where integration of economic keeps countries together in specific region to organize business with each other freely without any border limit.

Economic Integration can be defined as it is a position, where countries are agree to combine their business, monetary and fiscal policies.

Economic Integration effects on member countries include the benefits, cost of trade creation, trade diversion and gains from increase scale of competition, simply it effect on the world trading system.

Integration of economic has many types

Customs Union Economic Union

Common Market Free trade Area

Monetary Union

2-3: Role of MNC’s

The internationalization of production system has speeded up; from huge scale of amount of different countries multinational companies are enjoying benefits of cheap transportation and different technologies for their production.

In 1993, MNCs were responsible for around 2/3 exports of world.

The most important inspiration for companies to wide their business operation range across borders is the cheap production of factors in the progress growing countries “China and India”.

MNCs are responsible for 4/10 of the world manufacturing output and 2/3 of the trades, automobiles, computers and soft drinks which are produced and marketed by multinational companies.

2-4: Foreign Direct Investment (FDI)

FDI means any kind of investment that enjoys profit in the domestic area and works outside of the domestic area.

FDI need business connection with companies which operates smaller companies.

Foreign direct business relationship makes increase in Multinational Corporation.

FDI flows have increased in developing countries; in 1970 FDI have increase of $ 10 million, 1980 $ 20 million, 1990 $26.7 billion, 1998 $170 billion and in 1999 $208 billion. FDI have also risen into developed countries as well from $ 481 billion to $ 636 in 1998.

2-5: Balance of Payments

Balance of payments gives us information about countries of the world that how much a country contributes his role in the world economy.

BOP keeps all financial transaction record in side and out side of the country with other countries.

As a current account BOP keeps the record of trade in goods and trade in services like tourism and insurance, and net income flow.

As a financial account it keeps all record of investment and as a capital account it keeps record of purchase and sale of fixed assets.

3- Critical Analysis

Economic integration speed up when restrictions have been lifted on trade between nations, allowing countries freedom of trading opportunities which may not previously there. There has been growing tendency toward great regional integration since 1945 at supra national level.

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3-1: NAFTA (North American Free Trade Agreement:

NAFTA is an agreement between Canada, the United States and Mexico. It was signed in 1992 and took effect on January 1994 to bring place towards economic growth for the living standards of the three countries. On that time the three became the largest free market in the world.

NAFTA has also established a strong foundation for future growth and has set a valuable example of the benefits of trade liberalization.

NAFTA eliminated immediately tariffs on the goods of its member countries, In 1994 remaining tariffs on goods and cross-border investment among member countries has been gradually eliminated.

NAFTA was controversial at the time of implementation, and is today still considered controversial, because of residents of the three countries over its effect.

Some effects such as increased trade can be considered both positive and negative depending on the circumstance.

Improvement in health and services are positive effect and reduction in average GDP growth are negative effect.

Major industries are affected including agriculture industry, automobile industry and textile manufacture industry, telecommunications industry, financial services industry, energy, and trucking industry.

Investment is also effected by NAFTA, removal of tariff and Mexican limits on foreign investment have become more profitable for American to invest in Mexico. (Congressional Budget Office) 5

To encourage FDI, NAFTA funded a number of unique provisions

Particularly noticeable increased investment in plants for assembly of products destined for the United States.

Mexican assembly plants are owned by non Mexican corporation, these assembly plants manufacture finished goods for export to the United States. Non Mexican corporations taking advantage of Mexican lower labour cost.

3-1-1: Effects on FDI

After 1994 a huge flow in FDI entered Mexico and Canada in NAFTA, the stock of FDI increased by $ 124 billions, rise 435%.

FDI have contributed thousands of NAFTA member’s factories construction which produce of goods for exports.

3-1-2: Effects on Labour

Labor representatives criticize NAFTA by saying that when NAFTA was implemented, the agreement has led to lost of jobs in the US because most of industries have replaced plants to Mexico.

Between 1994 and 2000 United States employment rose rapidly but unemployment started to rise early in 2001, between March 2001 and in October 2003 domestic jobs were lost almost 2.4 million, primarily these jobs were concentrated in the manufacturing sector.

Workers have been hit since the onset of recession, they have experienced longer unemployment spell.

3-1-3: Effects on Immigration

After the implementation of NAFTA Mexico has experienced many changes, Mexico GDP has risen from $ 403 billion to $ 594 billion between 1993 and 2003. Between 1990 and 2000 Mexican immigrants living in the US has risen from 2.04 million to 4.81 million, and from 1993 to 2003 student that finish high school had risen 8%.

No improvement in wages since NAFTA, actually the wages in Mexico now are cheaper then when the agreement was first implemented.

3-2: European Union:

The European Union was form in1958 to enhance trade between member countries, also called the European Community or Common Market.

3-2-1: Enlargement of European Union:

In 1973 European Union enlargement started with the wish from Britain to apply and join membership of community.

In 1981 Greece, in 1986 Portugal and Spain and joined the union. In 1993 EU established some new rules that define whether a nation is entitled to join EU or not. After reunification of Germany, Finland, Sweden and Sweden also joined the EU.

In 2004 the largest wave of enlargement for the European Union was made when the European Commission’s Strategic Report from 2002 recommended 10 (Latvia, Estonia, Poland, Lithuania, the Czech Republic, Hungary, Slovakia, Slovenia, Malta and Cyprus) candidate members for inclusion in the European Union. These countries had almost 75 million population and $ 840 billion gross domestic product at that time.

In EU linguistically and culturally this enlargement increased massively the number of spoken languages, reflecting the increased level of diversity and cultural heterogeneity, so therefore this is the largest enlargement of EU.

3-2-2: Effects on Capital Mobility

The European Union (EU) major progress was in 1990, the issue of common currency “Euro” and membership enlargement.

Capital mobility has been significantly affected by European integration, flows of foreign investment and intra-regional have also been increased by integration.

The likely direct effects of ‘1992’ have been catalogued and quantified, and the possible implications of these changes for trade and industry have been estimated.

Each nation does business in separate market until 1993 and the members formally united into one of the biggest single world markets today which include 470 million consumers.

Many member countries of EU are linking their exchange rates together in a common currency “The Euro” in 1999 which started circulating.

The use of Euro will free companies that sell goods among European countries from the dealing with complex exchange rates.

EU has eliminated all trade barriers within the EU, to improve the economy efficiency of EU nations, to stimulate economic growth and thus to make the union economy more competitive in global markets.

3-2-3: Effects on FDI

European Union has increased their investment outside the EU borders for last couple decades. Foreign Direct Investment outward has increased during the last 15 years, by 2008 the European Union 27 stock of outward FDI in non European Union countries amounted to €3.3 trillion.

European Union internal investments have also increased. In 2008 the stock of European Union inward Foreign Direct Investment (FDI) by non EU investors amounted to €2.4 trillion.

European Union net asset position has increased from of €0.4 trillion in 2004 to € 0.9 trillion in 2008. (Impacts of EU outward FDI) 6

3-2-4: Effects on Labour

“The British government has Labour has been promoting its attractions for those willing to work.” (“The Sunday Times:” April 25, 2004) 7

In 2004 Poland joined the EU; Poland unemployment rate is high, as compare with other new Member States.

French farmers have employed most of the Polish workers; wages of these workers are very low (often 5 to 7 euros per hour) than those authorized by French legislation (12 to 13 euros p/hour normally) and production cost 60 to 80 % of labour accounts.

Polish worker came to work in European Union countries since it was enlarged in 2004. 2005 seasonal jobs in EU 450000 polish worker were employed, most went to work in Germany 28 percent, Italy 11 percent, Great Britain 21 percent, Netherland and Ireland 7 percent.

The Gulf Cooperation Council (GCC)

The GCC was established in 1981 and have six members of countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE)). Trade is free among member countries and member of any country can work and manage business in every where in member countries.

In 2001 GCC set a common external tariff of 5 percent for imports.

The Gulf Cooperation has brought for its member nations to enjoy the taste of open trade and move easily across the border.

Caribbean Community (CARICOM):

CARICOM is an organization of fifteen countries and which formed Free Trade Area in 1968. CARICOM is common market but imports and exports of goods are more beneficial for develop countries.

The objective of common labour market is to built effective use of recourses and to enhance labour distribute with in CARICOM, Generally common market has increased economic growth in CARICOM.

4- Conclusion

In the conclusion I want to highlight the purpose of international economic trade in foreign concepts.

That international economic trade has been important in the sense of international market and investment. National trades of the country never meet the requirement of the international economic system until it never achieve and understand international economic system.

Developing countries having lack of high skills, technological assistance, infrastructure, and other industrialize marketing tools, that’s why they always need to integrate their economic system on international standard. To end the undue or unreasonable tariff and non tariffs barriers to grow their economic markets, they also need to join international economic frame work. International economic system brings more changing in its frame work for trade liberalization and improvement to equalize the industrialized countries and non industrialized countries on equal footing.

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